GDP Update
February 2006
GDP Updates
INDUSTRY ANALYSIS
1. AMERICAS
U.S.
Dallas Federal Reserve President Richard Fisher said that U.S. fourth quarter growth could be revised higher and the country's rampant housing market did not pose the peril that many seemed to think.
"I would not be surprised if GDP were revised upward when we take a more definitive look at the fourth quarter," he told the Institute of Economic Affairs in a speech. U.S. GDP grew by a tepid 1.1 percent annualized rate in the last three months of 2005, although most economists think it will rebound.
In somewhat hawkish remarks, he also said U.S. growth would remain strong, provided the Fed keeps inflation under control and trade was not obstructed.
"As long as the Federal Reserve does its job of holding inflation at bay, and as long as our political leaders resist protectionism and other forms of interference with creative destruction, we will remain a productive economic machine," he said in his prepared remarks.
The U.S. central bank raised interest rates by a quarter percentage point to 4.5 percent last week, its 14th consecutive increase since June 2004, and markets bet it will increase them again to 4.75 percent at its next meeting at the end of March.
This will be the first meeting chaired by new Fed Chairman Ben Bernanke, who replaced Alan Greenspan on Feb. 1. Analysts expect Bernanke to steer the Fed towards adopting a formal inflation target to anchor monetary policy -- a course he favored as an academic before joining the central bank.
CANADA
Canada's GDP rose by 0.2 pct in November from October, boosted by the services sector, Statistics Canada said.
2. ASIA
CHINA
The GDP of southwest China's Chongqing Municipality rose 11.5-percent year-on-year to 310 billion yuan (38.75 billion U.S. dollars) in 2005, the municipal statistics bureau said. The growth rate was 1.6 percentage points higher than the national average, the bureau said in the latest report on the city's economic development. It said the city's per capita GDP averaged 11,068 yuan (1,383 U.S. dollars) in 2005.
Beijing's Gross Domestic Product (GDP) grew 11.1 per cent to 681.45 billion yuan (84.55 billion U.S. dollars) in 2005, according to the latest report issued by the Beijing Municipal Bureau of Statistics.
The per capita GDP reached 44,969 yuan (5,579 U.S. dollars), an increase of 8.1 percent from the previous year and nearly twice as much as in 2000, according to the report on the capital's economic and social development during the 2001-2005 period. .
Beijing's GDP increased by an average annual growth rate of 11.9 percent in the 2001-2005 period.
China's GDP grew by 9.9 percent in 2005 to 8.23 trillion yuan (1.02 trillion U.S. dollars) in 2005, according to the National Bureau of Statistics.
INDIA
As per Central Statistical Organization’s (CSO) quick estimates, GDP in 2004-05 registered a growth of 7.5 per cent as against the growth rate of 8.5 per cent the previous year. At constant prices, the national income in 2004-05 showed a rise of 7.8 per cent over the previous year. At current prices the national income rose by 11.6 per cent during 2004-05.
The growth rate of 7.5 per cent in the GDP during 2004-05 has been attributed to high growth in mining and quarrying (5.8 per cent); manufacturing (8.1 per cent); construction (12.5 per cent); trade, hotels and restaurants (8.1 per cent); transort, storage and communication (14.8 per cent); financing, insurance, real estate and business services (9.2 per cent); and community, social and personal services (9.2 per cent).
. JAPAN
Japan's economy is expected to show faster growth for the final quarter of 2005, helped by healthy domestic consumption, exports and capital spending. Forecasts by nine think tanks compiled by Reuters center on growth of 1.2 percent in gross domestic product (GDP) from the preceding quarter in real, price-adjusted terms. On an annualized basis, the median forecast was for an expansion of 4.7 percent. That would be the fourth straight quarter of economic expansion and would be much higher than the July-September growth of 0.2 percent from the previous quarter, or an annualized 1.0 percent.
The latest GDP forecasts were also stronger than a median forecast of 0.6 percent quarter-on-quarter growth produced by a Reuters poll of 22 economists released just two weeks ago. Economists revised their forecasts up after recent data showed personal consumption rose strongly and imports probably fell from the previous quarter, bringing up the contribution from external demand -- exports minus imports -- higher than expected.
"The economy continues to be on a growth path, with a sustained recovery in domestic demand such as consumption and capital investment," said Yasuo Yamamoto, senior economist at Mizuho Research. Personal consumption, which accounts for some 55 percent of GDP, is expected to increase, helped by strong demand for warm clothing and heaters amid a colder winter and by rises in year-end bonus payments and share prices. On the back of companies' continued appetite for expanding investment, capital spending is also considered by economists as a key engine of growth for the quarter.
External demand, or exports minus imports, is likely to push up growth by 0.4 percentage point, reflecting steady export growth as well as a slowdown in imports compared with the previous quarter, economists said. The GDP deflator, used to adjust the growth figure for price changes, is seen falling by 1.5 percent from the same quarter a year earlier. In July-September, the GDP deflator fell 1.4 percent year-on-year. But economists said that would not necessarily mean the state of deflation in Japan is worsening. Some blamed high oil prices that triggered rises in import prices, which by definition bring down the GDP deflator.
Nominal GDP is seen rising 1.2 percent in October-December from the previous quarter, or an annualized 4.6 percent, according to median forecasts by the nine think tanks. Economics Minister Kaoru Yosano said he was certain the Japanese economy, which is enjoying a domestic demand-led recovery, would move in a "brighter direction." But economists remained cautious. "In a way, October-December growth was too good," said Mizuho's Yamamoto, pointing out that special factors such as a colder winter pushed up consumption more than usual. "I think the pace of growth will slow down again in January-March to around 0.0-0.5 percent quarter-on-quarter growth," he added.
PAKISTAN
Basha dam will contribute three to four percent to the country’s gross domestic product (GDP), Water and Power Development Authority (WAPDA) Chairman Tariq Hameed told a meeting chaired by Prime Minister Shaukat Aziz on Tuesday. The WAPDA chief said the project would be completed in 2016. An official said that actual construction work on the dam is likely to start in 2008 after the completion of all formalities.
PHILIPPINES
The country's GDP grew 5.1 percent in 2005, below the 6.0 percent rise in 2004 but higher than forecasts made by economists.
In the fourth quarter, GDP growth accelerated to 6.1 percent from 5.3 percent in the same quarter of 2004, and from revised growth of 4.5 percent in the third quarter.
Arroyo said that growth last year was an "achievement" considering the higher oil prices, weaker global demand for Philippine products, and the unceasing political noise that the economy had to endure.
She said the billions of dollars sent home by overseas Filipino workers provided a strong pillar for the economy. Remittances from Filipinos working overseas rose 23% on year to a record high $10.85 billion in 2005 as migrant workers landed more higher paying jobs abroad.
A strong kick by agriculture and services lifted GDP to 6.1% on year in the fourth quarter compared to 5.3% in the year-earlier period, while GNP rose 7.0% on year from 5.5%.
Industry growth eased to 6.5% on year in the fourth quarter from 7.2% in the year-earlier period.
From the third quarter, GDP grew 2.7% while GNP rose 3.0% in the fourth quarter. Growth in the third quarter was revised higher to 4.5% from the earlier estimate of 4.1%.
Economic Planning Secretary Augusto Santos said that were it not for the drought that hurt farm output in the first half of 2005 and the higher oil prices, economic growth would have exceeded government target.
"The economy remains resilient amid external and domestic threats. The challenge now is to sustain and accelerate growth to a level where we can significantly raise the standard of living of majority of Filipinos," Santos said.
The government set a 5.7%-6.3% GDP target for 2006.
Santos said a recovery in agricultural production and increased infrastructure spending as the government raise taxes will allow the economy to reach the target this year.
3. EUROPE / AFRICA / MIDDLE EAST
AFRICA
Africa's GDP is estimated to have grown by 5.1 percent in 2005 and is expected to sustain at 5.5 percent in 2006, according to a UN report.
The report named "World Economic Situation and Prospects 2006" said that Africa's real GDP is estimated to have grown by 5.1 percent in 2005, roughly the same rate that was achieved in 2004. Steady growth in the latter half of the 1990s and the relatively high rates of growth recorded over the last five years confirm the continued recovery of African economies.
In 2005 African agricultural sector had a good overall performance although several countries suffered from drought and other setbacks, such as the locust invasion in west Africa in 2004 that affected crop yields in 2005.
Continued progress in macroeconomic and structural reforms, including the unification of foreign exchange markets and better public expenditure and financial management, and a high degree of macroeconomic stability in a large number of countries encouraged economic activity and improved economic welfare, said the recently issued report.
Parliamentary and presidential elections in Burundi and Liberia, and the signing of a peace agreement in Sudan, improved the growth prospects of those countries and underscored recent gains made throughout Africa in strengthening civil and political governance, the report said.
African economy also benefited from a supportive international economic environment. Higher oil prices and buoyant world market prices of some of Africa's main non-fuel, primary export commodities contributed to growth in export earnings and GDP.
Increased foreign direct investment (FDI) and official development assistance (ODA) inflows and a reduction in the stock of debt were also factors supportive of growth, said the report.
GDP expanded robustly in North African countries in 2005, except in Morocco, owing to the poor performance of its agricultural sector and a contraction in textile and clothing exports. Increased oil and gas exports in both value and volume underlined Algeria's GDP growth, according to the report.
It said that windfall earnings from higher oil prices led to large current-account and fiscal surpluses, which are estimated at 22.2 and 11.7 percent of GDP respectively, and allowed for a reduction in external indebtedness.
Egypt's GDP growth in 2005 was largely led by the increased oil prices, strong performance in the services sector and an increase in domestic demand following the reduction of customs duties and income tax rates, said the report.
Economic growth in sub-Saharan Africa (excluding Nigeria and South Africa) averaged 5 percent in 2004 and 2005 and is expected to remain at roughly the same rate this year, possibly with a slight acceleration, in 2006, according to the UN report.
The oil-exporting countries such as Angola and Chad grew at double-digit rates in 2005 (Sudan at a slightly lower rate of 7.0 percent) as a result of higher export volumes and stronger domestic spending. Most countries in this sub-region will achieve GDP growth rates in the range of 3 to 7 percent in 2006 and Mauritania will also join the group of fast-growing economies in the region when new oil fields come on stream in 2006, said the report.
According to the report Nigeria's GDP growth decelerated in 2005 but increased oil and gas export revenues enabled the country to run a current-account surplus.
South Africa's GDP grew by 5.0 percent in 2005, driven mainly by growth in real domestic expenditure owing to rising real incomes, low interest rates and moderate inflation, the report said. Strong global demand boosted exports, although the current account remained in deficit because of faster import growth. The high unemployment rate (officially reported at 26.5 per cent) remains a major challenge and was further complicated in 2005 by a large influx of illegal and unskilled workers from neighboring countries and a large outflow of skilled workers constituting a "brain drain" to the rest of the world, said the report.
It said Cote d'Ivoire, Seychelles and Zimbabwe were the only African countries where GDP contracted in 2005.
Fiscal policies remained cautious in Africa, as reflected in the generally low fiscal deficits, it said.
The report said monetary policies remained relatively tight in most countries and some oil-producing countries used monetary policy tools, including sterilization and credit controls, to avoid excess money-supply growth and to dampen inflationary pressures.
Africa's average inflation remained at low double-digit rate of 10 percent in 2005 and increased inflationary pressures, however, were recorded in countries such as Ghana, Guinea, Malawi, Zambia and Zimbabwe that faced currency depreciation and/or the immediate pass-through of higher imported oil and food prices to consumers, according to the report.
The report said the commitment of Africa to economic and political reforms was further underscored as 23 African countries have signed up for the African Peer Review Mechanism (APRM) as of November 2005. The main objective of the APRM exercise is to encourage integrity and transparency in political and economic governance of individual countries and thereby secure the confidence of external development partners and foreign investors in the sustainability of African reform efforts.
The external debt situation of Africa improved in 2005 and is expected to improve further in 2006 owing to higher export earnings, continued debt relief and more active debt management, said the report.
Despite the relatively positive aggregate economic performance, African economies are faced with fundamental challenges that require attention if better and faster growth is to be achieved in the future, the report warned.
It said the aggregate rate of growth has remained below 7 percent, which the UNECA and the World Bank estimate as the minimum average rate at which sub-Saharan African countries need to grow in order to achieve the first Millennium Development Goal of halving poverty on the continent by 2015.
The report said Africa faces six challenges. First price gains of some commodities, however, weakened in 2005. Many net fuel importers will therefore be hit if oil prices remain high. This additional burden could be severe since, in some countries, oil imports account for up to 50 percent of their total import bill.
Second, a possible disorderly adjustment of the current-account deficit of the United States could seriously undermine exports and growth in many African countries, as this might entail a significant depreciation of the dollar and contraction of United States imports.
Third, African countries will face increased competition in global markets for textiles and apparel from lower-cost producers as the impact of the elimination of the Agreement on Textiles and Clothing (ATC) continues to unfold.
Fourth, continued tensions in Cote d'Ivoire, the Ethiopian-Eritrean border, the Darfur region of the Sudan and Zimbabwe are a source of great concern and could jeopardize progress made in reducing conflicts and improving civil and political governance in a large number of African countries in recent years.
Fifth, the eventual reduction and/or removal of market-distorting subsidies on agricultural products within the framework of WTO negotiations may benefit some African agricultural exporting countries in the long run provided they are able to compete in global markets. Many net food importers, however, are likely to suffer from higher food prices in the short term.
Finally, African economies remain vulnerable to weather shocks, and the projected increased growth rate would have to be revised downwards if bad weather were to seriously affect the agricultural sector
AZERBAIJAN
In 2005 GDP growth made 26.4% in Azerbaijan, said Heydar Babayev, the minister for economic development, at the Cabinet Ministers’ session dedicated to the results of 2005.
CZECH REPUBLIC
The Czech economy should expand by 4.6 percent this year, according to the Finance Ministry latest forecast published today, while the previous estimate counted on a GDP growth of 4.4 percent.
However, the overly strong Czech currency remains a risk for economic growth. Average inflation should reach 2.6 percent this year, the ministry said.
Czech economic growth should thus slow down moderately this year against the growth of 4.9 percent predicted for 2005. GDP growth will still be driven by increasingly better foreign trade figures, and household consumption and investment activities of businesses should accelerate as well, the ministry said.
Finance Minister Bohuslav Sobotka said the strong Czech crown could jeopardize the expected economic growth. The crown set a new all-time high of CZK 28.25/EUR, which Sobotka said did not correspond with conditions in the economy.
However, a strong currency also slows down the growth in price level. But despite that, average inflation will increase to 2.6 percent this year from last year's 1.9 percent, with high energy prices the main reason, the ministry said. In the previous forecast, the ministry put inflation at 2.5 percent.
FINLAND
Finland's Handelsbanken said that it saw the Finnish economy growing by 3.7 per cent this year and 2.7 per cent in 2007, up from the 3.5 per cent and 2.6 per cent, respectively, forecast in the bank's previous macroeconomic outlook.
Tiina Helenius, the bank's chief economist, said in a statement that strong domestic demand and exports to Russia would help Finland's gross domestic product growth overtake the eurozone average. She warned however that a US slowdown, expected in late 2006, and a projected appreciation of the euro would make 2007 a challenging year.
ISRAEL
The Bank of Israel is optimistic. In its “Inflation Report for July-December 2005”, it is sticking with its GDP growth forecast for 2006 of 4.3%, and business product growth of 5.4%. “According to the national budget proposal for 2006, the government is expected to meet the budget targets, as it has done in the last two years. The macroeconomic assumptions underlying the planned 2006 budget are consistent to a great extent with recent economic developments: the budgeting of expenditure is in line with the long-term growth ceiling of 1% in real terms, and forecast income is also in harmony with expected macroeconomic developments. The 2006 budget proposal enables the deficit to be reduced (excluding credit) to 3% of GDP, alongside the reduction of the share of public expenditure in GDP and the contraction of the public sector debt to 99.6% of GDP in 2006.”
The greatest threat to Israel’s economic growth in 2006, however, comes from the global economy, especially the ongoing rise in fuel prices. In the pessimistic scenario, demand for Israeli exports in general will grow more slowly, demand for low technology and mixed technology exports will fall, due to developments related to a slowdown in global trade, which will reduce Israel’s GDP growth rate.
The Bank of Israel writes, “The slowdown in the rate of growth in the demand for Israeli exports in general, and the fall in exports of mixed technology and traditional products in particular, which were partly due to the slowdown in the growth of world trade, worked to slow the growth rate of GDP in Israel. The increase in the share of the Asian countries in world trade, and in particular those of China, India and Japan worked to increase the supply of imported low-cost goods. This development has slowed the increase in prices worldwide, including those in Israel. Nevertheless, the rates of inflation in the US and the euro bloc rose this year, primarily as a result of the increase in the prices of oil and other raw materials. This was also reflected in the prices of Israeli imports, which grew this year by 5.4%.”
The Bank of Israel also believes that the greatest inflationary threat in 2006 will come from energy prices.
LITHUANIA
Gross domestic product in Lithuania grew 7.3 percent to 70.7 billion litas (20.5 billion euros) last year, the Statistics Department reported. According to preliminary data, in the fourth quarter the economy expanded by 8.2 percent year-on-year to 19.3 billion litas.
GDP per capita in the full-year 2005 was 20,659 litas, up 7.6 percent compared with 2004. In the last quarter alone it was 5,640 litas, a rise of 8.6 percent year-on-year.
POLAND
In 2005, the economy grew a little bit slower than economists thought it would. GDP rose by 3.2 percent or 0.1 percentage point below market forecasts and 2.1 percentage points below 2004 results, the preliminary forecast made by central statistical office GUS say.
Despite weaker results, analysts are not disappointed.
“The first impression was negative. The GDP growth rose just above 4 percent in QIV while we expected a better result. However, if you look at statistics more deeply, the picture is satisfying”, Marcin Mroz, Societe-Generale chief economist commented. He stressed that domestic demand grew by 1.9 percent last year.
“Contrary to what may seem, yesterday’s GDP data is good. The 6.2 percent growth of investment lets me estimated that they grew by 10 percent in the last quarter, dynamics recently noted in 1998”, Ryszard Petru, Bank BPH chief economist reminded.
In the first quarter of 2005, investment rose by only 1.2 percent.
RUSSIA
Russia’s gross domestic product (GDP) grew by a real 6.4 percent in 2005, beating analysts’ expectations and the government’s own forecasts.
Russia's gross domestic product increased by 34.7% from 2000 to 2005, the Federal Statistics Service said Thursday. The country's GDP rose an estimated 6.4% in 2005 against the previous year. Russia's GDP grew 4.7% in 2002, 7.3% in 2003 and 7.1% in 2004, the agency said. In nominal terms, Russia's GDP was worth about $757 billion in current prices in 2005, the agency said, but the real GDP in 2003 terms stood at about $527 billion in 2005.
The figures confirmed comments made by President Vladimir Putin on Tuesday, Jan. 31, at his annual news conference, but fell short of the 7.2 percent target needed to achieve Putin’s strategic goal of doubling the economy within a decade.
Last summer Russia’s Economy Ministry predicted GDP growth of 5.9 percent while analysts polled by the Reuters agency in December saw GDP growth at 6.2 percent.
Russia’s GDP grew by 7.2 percent in 2004. The Statistics Service said the 2005 figure was the first estimate and could be revised later. It did not publish a GDP figure for the fourth quarter of 2005. Growth was strongest in trade and services, up by 12.3 percent in 2005 after 11.2 percent in 2004. Manufacturing and extraction industry growth slowed to 4.4 percent and 1.8 percent from 6.6 percent and 7.2 percent respectively.
Analysts blamed production constraints and lack of investment for a slowdown in manufacturing and extraction.
SPAIN
The Bank of Spain said it sees GDP rising 3.5 pct in the fourth quarter of 2005 from a year earlier and up 0.9 pct from the third quarter. In its monthly economic bulletin, the central bank said it sees GDP growing 3.4 pct for the whole of 2005 from a year earlier.
UNITED KINGDOM
The U.K.'s gross domestic product grew 0.6% sequentially, ahead of the 0.5% growth seen by economists. Year-on-year growth was 1.7% and for 2005 as a whole growth hit 1.8%. Business services and finance firms, which represent over a quarter of the U.K. economy, showed some of the strongest gains, with output increasing by around 1.1%. In particular, accountancy and law firms and management consultants performed well.
"We were a little bit surprised that services came in so strong," said Raymond Van der Putten, an economist with BNP Paribas. He noted, however, that strong retail figures in November and December had indicated the sector would perform well.
In contrast, output from the production sector fell 0.6% sequentially and 2.2% year-on-year, mainly due to a decline in manufacturing.
The GDP figures reduce the likelihood of the Bank of England cutting interest rates, which was already an outside bet, said Van der Putten.
"The publication of the GDP data confirms that the economy is still very dynamic, despite the continuing deterioration of the labor market," he said.